PRODUCTION ANALYSIS

SCOPE PRODUCTION POSSIBILITY ANALYSIS. ― ― LAW OF VARIABLE PROPORTION. ― ― LAW OF RETURN TO SCALE. ISOQUANT - ISOCOST ANALYSIS.

OUTPUT PRODUCTION PRODUCTION ANALYSIS INPUT PRODUCTION: CONVERSION OR TRANSFORMATION OF INPUTS TO OUTPUT. PROCESS ADDS VALUE TO INPUTS TO SATISFY NEEDS/ WANTS. PRODUCTION: ADDITION OF VALUE/ UTILITY. DEFENCE SERVICES PRODUCERS – THEY SATISFY NEEDS OF NATIONAL SECURITY

OUTPUT PRODUCTION ANALYSIS PRODUCTION INPUT PRODUCTION ANALYSIS: LAWS GOVERNING RELATIONSHIP BETWEEN INPUTS & OUTPUTS. LAWS HELP DECIDE OPTIMAL COMBINATION OF INPUTS (RESOURCES) FOR DESIRED RESULTS AT LOWEST COST. DEFENCE SERVICES

LAWS LAW OF VARIABLE PROPORTIONS. LAW OF RETURN TO SCALE. ANALYSIS TECHNIQUES PRODUCTION POSSIBILITY ANALYSIS. ISO-COST / ISO-QUANT ANALYSIS. PRODUCTION ANALYSIS

OUTPUT PRODUCTION ANALYSIS PRODUCTION INPUT PRODUCTION ANALYSIS: LAWS GOVERNING RELATIONSHIP BETWEEN INPUTS & OUTPUTS. LAWS HELP DECIDE OPTIMAL COMBINATION OF INPUTS (RESOURCES) FOR DESIRED RESULTS AT LOWEST COST.

SUBSTITUTION OF RESOURCE WITHIN ONE INPUT ITSELF: INCREASE/ DECREASE ONE INPUT BY ANOTHER. PRODUCTION FUNCTION INFANTRY Vs MECHANISED AD AIRCRAFT Vs MISSILES GUNS Vs GROUND STRIKE AIRCRAFT PRODUCTION FUNCTION RELATIONSHIP BETWEEN INPUTS AND OUTPUTS P = f (R1,R2…Rn )

HOW TOTAL & MARGINAL OUTPUT IS AFFECTED BY CHANGE IN ONE INPUT KEEPING OTHER INPUTS CONSTATNT. “AS PROPORTION OF ONE FACTOR IN A COMBINATION OF FACTORS IS INCREASED, MARGINAL & AVERAGE OUTPUTS WILL INCREASE THEN AFTER A POINT, FIRST MARGINAL AND THEN AVERAGE OUTPUT WILL DIMINISH”. APPLICABLE IN SHORT RUN. LAW OF VARIABLE PROPORTIONS

EFFECT ON OUTPUT: THREE STAGES INCREASING RETURNS – MARGINAL RETURN RISES CONSTANT RETURNS – MARGINAL RETURN FALLS DIMINISHING RETURNS – MARGINAL RETURN BECOMES NEGATIVE LAW OF VARIABLE PROPORTIONS

LAW OF VARIABLE PROPORTIONS LAW OF VARIABLE PROPORTIONS PRODUCTION OF AMN SHELLS PER MACHINE PER HOUR IN ORD FACTORY NO OF WORKERS TOTAL PRODUCTION AVERAGE PRODUCTION MARGINAL PRODUCTION STAGES OF PRODUCTION

LAW OF VARIABLE PROPORTIONS LAW OF VARIABLE PROPORTIONS PRODUCTION OF AMN SHELLS PER MACHINE PER HOUR IN ORD FACTORY NO OF WORKERS TOTAL PRODUCTION AVERAGE PRODUCTION MARGINAL PRODUCTION STAGES OF PRODUCTION 1888I I I II II II III III

LAW OF VARIABLE PROPORTIONS LABOUR TP MP/AP STAGE I II III 1212 AP MP B A MP > AP AP > MP INCREASING RETURN: INCREASE IN OUTPUT MORE THAN PROPORTIONATE TO INCREASE IN INPUT OPTIMAL POINT IN EMPLOYMENT OF FACTOR CONSTANT RETRUN: INCREASE IN OUTPUT PROPORTIONATE TO INCREASE IN INPUT DIMNISHING RETURN: INCREASE IN OUTPUT LESS THAN PROPORTIONATE TO INCREASE IN INPUT

EXAMPLES OF LAW OF VARIABLE PROPORTIONS NO OF AIRCRAFT TAKING PART IN BOMBING MISSION AND DESTRUCTION SOUGHT. NO OF GUNS ALLOTTED TO NEUTRALISE A TARGET AND EFFECT ACHIEVED. AMOUNT OF TIME ALLOCATED TO TRAINING AND STANDARDS ACHIEVED. NO OF MEN ALLOCATED TO A TASK AND OUTPUT. IN SHORT, IN SITUATIONS WHERE ONE FACTOR IS INCREASED, WHILE OTHERS REMAIN CONSTANT.

ASSUMPTIONS NO CHANGE IN TECHNOLOGY IMPROVEMENT IN TECHNOLOGY BOUND TO RAISE OUTPUT. ONLY ONE FACTOR VARIABLE, REST CONSTANT. LAW OF VARIABLE PROPORTIONS

LAW OF RETURN TO SCALE DEALS WITH EFFECT ON OUTPUT, WHEN ALL INPUTS CHANGE SIMULTANEOUSLY IN SAME RATIO - DOUBLE, TREBLE ETC… LARGER THE SCALE OF ACTIVITIES – LOWER GENERALLY THE COST OF ACHIEVING OUTPUT. ECONOMIES OF SCALE ARISE FROM LARGE SCALE ACTIVITIES.

LAW OF RETURN TO SCALE ECONOMIES RESULT FROM EFFICIENT USE OF RESOURCES FULLER UTILISATION OF EXISITING CAPACITY R&D

ECONOMIES OF SCALE TRUE ONLY UP TO A POINT. THEN DIS-ECONOMIES SETS IN. THREE STAGES INCREASING RETURNS – MARGINAL RETURN RISES CONSTANT RETURNS – MARGINAL RETURN CONSTANT DIMINISHING RETURNS – MARGINAL RETURN DIMNISHES LAW OF RETURN TO SCALE

RETURNS TO SCALE RETURNS TO SCALE (PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE) FACTORS OF PRODN EMP TOTAL PRODUCTS /RETURNS MARGINAL PRODUCT/ RETURNS STAGE OF RETURN TO SCALE

RETURNS TO SCALE RETURNS TO SCALE (PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE) FACTORS OF PRODN EMP TOTAL PRODUCTS /RETURNS MARGINAL PRODUCT/ RETURNS STAGE OF RETURN TO SCALE 1 WORKER+3 hrs

RETURNS TO SCALE RETURNS TO SCALE (PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE) FACTORS OF PRODN EMP TOTAL PRODUCTS /RETURNS MARGINAL PRODUCT/ RETURNS STAGE OF RETURN TO SCALE 1 WORKER+3 hrs 2 WORKERS + 6 hrs

RETURNS TO SCALE RETURNS TO SCALE (PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE) FACTORS OF PRODN EMP TOTAL PRODUCTS /RETURNS MARGINAL PRODUCT/ RETURNS STAGE OF RETURN TO SCALE 1 WORKER+3 hrs 2 WORKERS + 6 hrs 3 WORKERS + 9hrs 4 WORKERS+ 12 hrs 5 WORKERS +15 hrs 6 WORKERS + 18 hrs. 7 WORKERS + 21 hrs 8 WORKERS + 24 hrs 9 WORKERS + 27 hrs

RETURNS TO SCALE RETURNS TO SCALE (PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE) FACTORS OF PRODN EMP TOTAL PRODUCTS /RETURNS MARGINAL PRODUCT/ RETURNS STAGE OF RETURN TO SCALE 1 WORKER+3 hrs WORKERS + 6 hrs WORKERS + 9hrs WORKERS+ 12 hrs WORKERS +15 hrs WORKERS + 18 hrs WORKERS + 21 hrs WORKERS + 24 hrs WORKERS + 27 hrs 3200

RETURNS TO SCALE RETURNS TO SCALE (PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE) FACTORS OF PRODN EMP TOTAL PRODUCTS /RETURNS MARGINAL PRODUCT/ RETURNS STAGE OF RETURN TO SCALE 1 WORKER+3 hrs WORKERS + 6 hrs WORKERS + 9hrs WORKERS+ 12 hrs WORKERS +15 hrs WORKERS + 18 hrs WORKERS + 21 hrs WORKERS + 24 hrs WORKERS + 27 hrs

RETURNS TO SCALE RETURNS TO SCALE (PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE) FACTORS OF PRODN EMP TOTAL PRODUCTS /RETURNS MARGINAL PRODUCT/ RETURNS STAGE OF RETURN TO SCALE 1 WORKER+3 hrs 200 STAGE OF INCREASING RETURNS 2 WORKERS + 6 hrs WORKERS + 9hrs WORKERS+ 12 hrs WORKERS +15 hrs STAGE OF CONSTANT RETURNS 6 WORKERS + 18 hrs WORKERS + 21 hrs STAGE OF DECREASING RETURNS 8 WORKERS + 24 hrs WORKERS + 27 hrs

STAGE 1 STAGE 3 STAGE MARGINAL OUTPUT NO OF COMPOSITE UNITS OF FACTORS OF PRODUCTION MARGINAL PRODUCT CURVE OPTIMAL POINT IN EMPLOYMENT OF FACTORS LAW OF RETURN TO SCALE

DIS-ECONOMIES START OPERATING AS SCALE OF ACTIVITY IS RAISED BEYOND A POINT. OPTIMUM MIX OF INPUTS TO ACHIEVE THE RESULT VARIES WITH THE DEGREE OF RESULT DESIRED. APPLICABLE IN LONG RUN. CDR MUST ANALYSE THAT MARGINAL RETURN IN TERMS OF RESULT NOT LESS THAN MARGINAL INCREASE IN INPUT. LAW OF RETURN TO SCALE

PRODUCTION POSSIBILITY ANALYSIS DETERMINES MAX RESULT POSSIBLE WITHIN GIVEN RESOURCE ALLOCATION. ANALYSIS OF ONE INPUT – TWO OUTPUT CASE. DETERMINES MOST EFFICIENT COMBINATION OF TWO FOR MAXIMISING RESULTS WITHIN GIVEN ONE INPUT. TECHNIQUE MAKES USE OF PRODUCTION POSSIBILITY CURVE.

PRODUCTION POSSIBILITY ANALYSIS EXAMPLE ALLOCATED BUDGET – C CRORES. ACQUISITION OF OPTIMUM COMBINATION OF OFFENSIVE POTENTIAL (OP) AND DEFENSIVE POTENTIAL (DP). C CRORE – 400 OP OR 930 DP POSSIBLE. DEFENCE PLANNER FORMULATES PRODUCTION POSSIBILITY SCHEDULE.

PRODUCTION POSSIBILITY SCHEDULE PRODUCTION POSSIBILITY SCHEDULE ( INPUT- DEFENCE RESOURCES OUTPUT -OP&DP ) POSSIBLE COMBINATIONS OFFENSIVE POTENTIAL DEFENSIVE POTENTIAL A4000 B C D E0940 COMBINATIONS POSSIBLE

PRODUCTION POSSIBILITY SCHEDULE PRODUCTION POSSIBILITY SCHEDULE ( INPUT- DEFENCE RESOURCES OUTPUT -OP&DP ) POSSIBLE COMBINATIONS OFFENSIVE POTENTIAL DEFENSIVE POTENTIAL A4000 B C D E0940 COMBINATIONS POSSIBLE REAL SITUATION PRODUCTION POSSIBILITY SCHEDULE CAN BE FORMULATED BASED ON COST BENEFIT ANALYSIS, SYSTEM ANALYSIS AND OR

PRODUCTION POSSIBILITY CURVE E1 E2 E3 I2I2 I1I1 NON FEASIBLE COMBINATION DEFENSIVE POTENTIAL OFFENSIVE POTENTIAL COMBINATIONS ON PP CURVE ARE THE UTMOST THAT BUDGET CAN FETCH COMBINATIONS I 1 & I 2 NOT GETTING BEST OUT OF BUDGET PP CURVE FOR BUDGET C + X CRORES EFFICIENCY

PRODUCTION POSSIBILITY CURVE E1 E2 E3 DEFENSIVE POTENTIAL OFFENSIVE POTENTIAL E4 CONCAVE NATURE OF PP CURVE MARGINAL RATE OF TRANSFORMATION: (MRT) AMOUNT OF ONE OBJECT GIVEN TO ACHIEVE EXTRA AMOUNT OF OTHER MRT: INCREASES PROGRESSIVELY BECAUSE RESOURCES LESS AND LESS ADAPTABLE TO OTHER OBJECT IS DIVERTED.

PRODUCTION POSSIBILITY CURVE E1 E2 E3 DEFENSIVE POTENTIAL OFFENSIVE POTENTIAL E4 ALL COMBINATIONS ON PP CURVE EFFICIENT: WHICH TO CHOOSE?

IC1 A B C D INDIFFERENCE CURVE ALL POINTS YIELD EQUAL LEVEL OF MILITARY UTILITY OR EFFECTIVENESS. DECISION MAKER INDIFFERENT TO CHOICES BETWEEN COMBINATIONS DEFENSIVE POTENTIAL OFFENSIVE POTENTIAL

DEFENSIVE POTENTIAL OFFENSIVE POTENTIAL IC 2 IC 3 IC 1 INDIFFERENCE MAP EACH CURVE REPRESENTS DIFFERENT LEVEL OF EFFECTIVENESS.

PRODUCTION POSSIBILITY CURVE WITH INDIFFERENCE MAP SUPERIMPOSED DEFENSIVE POTENTIAL OFFENSIVE POTENTIAL IC 2 IC 3 IC 1 E1 E3 E4 E N N I-INEFFICIENT E- POSSIBLE & OPTIMUM N-NON FEASIBLE I I I E2 E5

PRODUCTION POSSIBILITY CURVE WITH INDIFFERENCE MAP SUPERIMPOSED DEFENSIVE POTENTIAL OFFENSIVE POTENTIAL IC 2 IC 3 IC 1 E1 E3 E4 E I I I E2 E5 PP CURVE SHOWS ALL COMBINATIONS UTMOST THAT BUDGET CAN FETCH (EFFICIENCY). INDIFFERENCE CURVE SHOWS ALL COMBINATIONS HAVING EQUAL LEVEL OF MILITARY UTILITY (EFFECTIVENESS).

INDIFFERNCE CURVE ANALYSIS NATIONAL SECURITY VS DEVP LEVEL OF SECURITY % RATE OF ECO DEVP POLICY FEASIBILITY CURVE BASED ON GDP (TOTAL RESOURCES) POLICY FEASIBLE AREA 0

INDIFFERENCE CURVE DEFENCE EXP VS DEVP LEVEL OF SECURITY % RATE OF ECO DEVP INDIFFERENCE CURVES SHOWING THE DEGREE TO WHICH NATIONAL INTERESTS ARE MET IC5 IC 4 IC3 0 IC2 IC1

PRODUCTION POSSIBILITY CURVE WITH INDIFFERENCE CURVE SUPERIMPOSED DEFENCE EXP VS DEVP LEVEL OF SECURITY % RATE OF ECO DEVP INDIFFERENCE CURVES SHOWING THE DEGREE TO WHICH NATIONAL INTERESTS ARE MET IC5 IC 4 IC3 POLICY FEASIBLE AREA 0 POLICY FEASIBILITY CURVE BASED ON GDP (TOTAL RESOURCES) E D C A B IC2 IC1

PRODUCTION POSSIBILITY CURVE APPLICATIONS A SQN OF TPT AIRCRAFT LIFTING MEN AND MATERIAL. AN ENGINEER COY CLEARING MINES AND CONSTRUCTING DEFENCES. A SET OF MACHINES PRODUCING TWO PRODUCTS. FORCES USED NOW AND HELD IN RESERVE. ALL SITUATIONS WHERE ONE RESOURCE CAN BE USED FOR TWO PURPOSES

ISOQUANT CURVE BOMBS BOMBERS 10 TARGETS DESTRUCTION TWO COMBINATION OF INPUTS GIVING SAME OUTPUT MORE BOMBERS WITH SINGLE BOMBS BOMBERS WITH TWO BOMBS LESSER NO OF BOMBERS FLYING MORE SORTIES

ISOQUANT CURVES 20 TARGETS 30 TARGETS 40 TARGETS BOMBS BOMBERS 10 TARGETS 50 TARGETS DIFFERENT ISOQUANT FOR DIFFERENT OUTPUTS IT IS POSSIBLE TO MOVE TO HIGHER LEVEL OF OUTPUT BY INCREASING ATLEAST ONE INPUT.

ISOCOST LINE OR EXCHANGE CURVE OR EQUAL COST LINE OR BUDGET LINE BOMBS BOMBERS X Y Y1Y1Y1Y1 VARIOUS COMBINATIONS OF BOMBERS AND BOMBS THAT CAN BE PROCURED IN GIVEN BUDGET

ISOQUANT & ISOCOSTCURVES BOMBS BOMBERS 20 TARGETS 50 TARGETS 30 TARGETS 40 TARGETS 10 TARGETS E1E1 E ISOCOST shows exchange/ subs between items keeping budget constant (ECONOMY). ISOQUANT shows exchange/ subs between items keeping output constant (EFFECTIVENESS). A BD

ISOQUANT AND ISOCOST ANALYSIS APPLICATIONS SITUATIONS WHERE TWO PARTIALLY SUBSTITUTABLE FACTORS PRODUCE SAME OUTPUT. EFFECTIVENESS IN A GIVEN BUDGET. COMBINATION FOR A GIVEN BUDGET AND EFFECTIVENESS. BUDGET INCREASE REQUIRED FOR ENHANCING EFECTIVENESS. REDUCTION IN EFFECTIVENESS DUE TO BUDGET CUT OR INCREASE IN PRICE.